Dhillon v Orchard - Sale and Rent Back Agreement Dispute

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  Dhillon v Orchard & Anor [2026] EWCA Civ 346 (23 March 2026)

URL: https://www.bailii.org/ew/cases/EWCA/Civ/2026/346.html
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[2026] EWCA Civ 346 | | |
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| | | Neutral Citation Number: [2026] EWCA Civ 346 |
| | | Case No: CA-2025-001001 |
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
APPEALS (ChD)
Mr Justice Miles
[2025] EWHC 834 (Ch)

| | | Royal Courts of Justice
Strand, London, WC2A 2LL |
| | | 23/03/2026 |
B e f o r e :

LORD JUSTICE NEWEY
LADY JUSTICE ASPLIN
and
LORD JUSTICE SNOWDEN

Between:
| | DALJIT KAUR DHILLON | Claimant/Appellant |
| | - and ? | |
| | (1) JEFFREY ORCHARD
(2) ANN ORCHARD | Defendants/Respondents |

**Christopher Snell (instructed by direct access) for the Appellant
Simon Howarth KC and Andrew Morrell (instructed by Sternberg Reed LLP) for the Respondents

Hearing date: 26 February 2026**

HTML VERSION OF JUDGMENT APPROVED ____________________

Crown Copyright ©

1. This judgment was handed down remotely at 10.30am on 23 March 2026 by circulation to the parties or their representatives by e-mail and by release to the National Archives.
3. Lord Justice Newey:
4. What is at issue in this appeal is whether the respondents, Jeffrey Orchard and his wife Ann, can seek to recover from the appellant, Daljit Dhillon, a property which they transferred pursuant to a sale and rent back agreement to a company called Red 2 Black Properties Limited ("R2BL"), from which Ms Dhillon bought it. Miles J ("the Judge") held that they could, but Ms Dhillon disputes that. The point turns on the meaning and implications of certain provisions of the Financial Services and Markets Act 2000 ("FSMA") and the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 ("the RAO").
6. Basic facts
7. By 2010, the Orchards had for some years been the registered freehold owners of 56a Claudian Way, Grays, Thurrock ("the Property"). Indebtedness totalling between ?74,000 and ?78,000 was secured on the Property.
9. The Orchards entered into a sale and rent back agreement with R2BL in late 2010. This involved, first, the Orchards transferring the Property to R2BL at a price of ?112,000, which was 70% of the figure arrived at by a desktop valuation. Secondly, the Orchards entered into an assured shorthold tenancy of the Property at a rent of ?700 per month.
11. R2BL had been incorporated earlier in 2010 by Gurpreet Chadda, who was at the time married to Ms Dhillon. When the sale and rent back agreement was concluded, Mr Chadda and Ms Dhillon held all R2BL's shares equally between them, but Mr Chadda was the company's sole director. However, on 24 January 2011 Ms Dhillon became a director of R2BL and, from 16 March 2011, she was the company's only shareholder and director. Mr Chadda's shareholding was transferred to her as part of their divorce settlement.
13. On 29 November 2010, R2BL had executed a deed of trust recording that it held the Property on trust for Mr Chadda and, from 29 December 2010, the Orchards paid rent directly to Mr Chadda. Once, however, Mr Chadda had transferred his shares in R2BL to Ms Dhillon, the Orchards paid rent to an account in the name of that company. Mr Chadda and Ms Dhillon believed that the transfer of the shares also resulted in the transfer to Ms Dhillon of the beneficial interest in the Property.
15. On 15 March 2013, Ms Dhillon bought the Property from R2BL for about ?115,000. From June 2013, the Orchards paid rent to Ms Dhillon and, from October 2015, the rent was increased to ?1,000 a month pursuant to a new assured shorthold tenancy agreement.
17. On 5 February 2015, Ms Dhillon had granted a charge over the Property to her father. The charge was protected by a unilateral notice from 28 August 2015 and registered as a legal charge on 22 April 2016.
19. R2BL was dissolved on 17 May 2016. Shortly afterwards, on 7 June 2016, Ms Dhillon was made bankrupt, and in August 2016 the Official Receiver instructed the Orchards to make no further payments to Ms Dhillon. In 2019, solicitors acting for Ms Dhillon's trustee in bankruptcy asked the Orchards to pay rent to the trustee but, despite chasers, no such payments appear to have been made.
21. In March 2022, as part of a settlement between Ms Dhillon and her trustee in bankruptcy, the trustee removed a bankruptcy restriction which had been imposed on the Property. On 18 May 2022, Ms Dhillon served a notice on the Orchards seeking possession of the Property under section 8 of the Housing Act 1988 on the basis of rent arrears. On 4 June 2022, Ms Dhillon issued the present proceedings, claiming possession of the Property on the strength of rent arrears.
23. By their defence and counterclaim, the Orchards challenged the original sale and rent back agreement on two grounds. First, they alleged that they had been induced to enter into the agreement by fraudulent misrepresentation by R2BL. Secondly, they maintained that they were entitled to recover the Property as a result of breaches of FSMA, taken in conjunction with the RAO.
25. The matter came before His Honour Judge Duddridge on 22 July 2024. Giving judgment on 25 July, he explained that he was not satisfied on the balance of probabilities that there had been a misrepresentation, fraudulent or otherwise, to the Orchards. With regard to FSMA, Judge Duddridge explained that, by virtue of article 63J of the RAO, entering into a sale and rent back agreement is a "regulated activity" for the purposes of FSMA if carried on by way of business and that, while Mr Chadda had been authorised to carry on such activities, R2BL had not, with the result that it had not been able to enforce its sale and rent back agreement with the Orchards. The arguments before Judge Duddridge proceeded, however, on the basis that the critical question was whether Ms Dhillon had herself been carrying on sale and rent back agreement activities by way of business and so the Judge focused on that issue. He determined it in Ms Dhillon's favour, finding that she "was not carrying out the activities in question by way of business for the purposes of section 22 [of FSMA], and therefore ? section 22 is not engaged". He accordingly concluded that the Orchards' defences to Ms Dhillon's claim could not succeed even though there were "reasons to be very critical and perhaps even suspicious of the activities of [R2BL]". In those circumstances, Judge Duddridge ordered the Orchards to give up possession of the Property and also to pay Ms Dhillon ?97,000 in respect of outstanding rent.
27. The Orchards appealed against Judge Duddridge's decision on three grounds. One challenged his application of the "by way of business" test found in section 19 of FSMA. The second raised a point which had not featured in the argument before Judge Duddridge. This involved the contention that section 26 of FSMA gave rise to a "mere equity" in the Orchards' favour which was binding on Ms Dhillon as an overriding interest because they were in "actual occupation" of the Property when it was transferred to her. The third ground of appeal was consequential on the other two.
29. The appeal came before the Judge on 7 March 2025. In his judgment dated 8 April 2025 ("the Judgment", [2025] EWHC 834 (Ch), [2026] Ch 35), the Judge rejected the Orchards' first ground of appeal, holding that Judge Duddridge had been entitled to conclude that Ms Dhillon had not herself carried on relevant activities "by way of business". However, the Judge decided that he should allow the Orchards to advance their second ground of appeal notwithstanding the fact that the point had not been taken below and, further, he considered that the argument was well-founded. The Judge said in paragraph 142 of the Judgment:
31. "I conclude that the [Orchards'] rights under section 26 of FSMA are binding on [Ms Dhillon] and that she did not take free of them when she became registered as the proprietor of the Property. Ground 2 of the appeal is therefore allowed. The consequences of this decision will need to be determined at a future hearing."
32. The Judge gave directions on 16 April 2025 in relation to the future hearing which he considered to be necessary. By paragraph 2 of his order of that date, the Judge directed that the issues to be resolved at that hearing were those set out in the schedule to the order. They were these:
34. "(1) What is the relevance (if any) of the fact that R2BL is not a party to these proceedings (judgment paragraphs 102 & 150)?
35. (2) Can [Ms Dhillon] rely on section 28 of FSMA to uphold the [sale and rent back] transaction (judgment paragraphs 142 and 150)?
36. (3) What counter restitution if any ought the [Orchards] to give, and by what means (judgment paragraph 150)?
37. (4) What is the relevance and consequence (if any) of the fact that the Property was charged by [Ms Dhillon] to a third party (judgment paragraph 150)?
38. (5) Whether the [Orchards] have waived their right to recission as pleaded in paragraph 45(i) of the Defence to Counterclaim?
39. (6) Whether the doctrine of laches applies, as pleaded in paragraph 45(ii) of the Defence to Counterclaim?"
40. Ms Dhillon now appeals against the Judge's decision.
42. The statutory framework
43. Section 19 of FSMA imposes the "general prohibition" barring anyone but an "authorised person" or an "exempt person" from carrying on a "regulated activity" in the United Kingdom. By section 22, an activity is a "regulated activity" for the purposes of the Act:
45. "if it is an activity of a specified kind which is carried on by way of business and?
46. (a) relates to an investment of a specified kind; or
47. (b) in the case of an activity of a kind which is also specified for the purposes of this paragraph, is carried on in relation to property of any kind."
48. "Specified" means "specified in an order made by the Treasury" (see section 22(5)) and the RAO serves this purpose.
49. Section 23 of FSMA renders contravention of the general prohibition a criminal offence (though it is a defence for the accused to show that he took all reasonable precautions and exercised all due diligence to avoid committing the offence ? see section 23(3)), but breach may also have civil consequences. Sections 26-30 of FSMA are concerned with these. Sections 26 and 27 deal respectively with two-party and three-party situations. Section 26 addresses a case in which a person makes an agreement in the course of carrying on a regulated activity in contravention of the general prohibition. Section 27 applies where an authorised person (termed "the provider") makes an agreement in the course of carrying on a regulated activity, but the agreement was made in consequence of a third party's breach of the general prohibition.
51. So far as relevant, section 26 of FSMA reads as follows:
53. "(1) An agreement made by a person in the course of carrying on a regulated activity in contravention of the general prohibition is unenforceable against the other party.
54. (2) The other party is entitled to recover?
55. > > (a) any money or other property paid or transferred by him under the agreement; and
56. > > (b) compensation for any loss sustained by him as a result of having parted with it.
57. (3) 'Agreement' means an agreement?
58. > > (a) made after this section comes into force; and
59. > > (b) the making or performance of which constitutes, or is part of, the regulated activity in question ?."
60. Section 27 of FSMA provides for there to be similar consequences in relation to an agreement to which it applies. Thus, by section 27(1A) such an agreement is "unenforceable against the other party" and section 27(2) states:
62. "The other party is entitled to recover?
63. (a) any money or other property paid or transferred by him under the agreement; and
64. (b) compensation for any loss sustained by him as a result of having parted with it."
65. Section 28 of FSMA gives the Court a discretion to allow an agreement to be enforced, and money and property to be retained, notwithstanding a breach of the general prohibition. The section provides:
67. "(1) This section applies to an agreement which is unenforceable because of section 26 or 27, other than an agreement entered into in the course of carrying on a credit-related regulated activity.
68. (2) The amount of compensation recoverable as a result of that section is?
69. > > (a) the amount agreed by the parties; or
70. > > (b) on the application of either party, the amount determined by the court.
71. (3) If the court is satisfied that it is just and equitable in the circumstances of the case, it may allow?
72. > > (a) the agreement to be enforced; or
73. > > (b) money and property paid or transferred under the agreement to be retained.
74. (4) In considering whether to allow the agreement to be enforced or (as the case may be) the money or property paid or transferred under the agreement to be retained the court must?
75. > > (a) if the case arises as a result of section 26, have regard to the issue mentioned in subsection (5); or
76. > > (b) if the case arises as a result of section 27, have regard to the issue mentioned in subsection (6).
77. (5) The issue is whether the person carrying on the regulated activity concerned reasonably believed that he was not contravening the general prohibition by making the agreement.
78. (6) The issue is whether the provider knew that the third party was (in carrying on the regulated activity) contravening the general prohibition.
79. (7) If the person against whom the agreement is unenforceable?
80. > > (a) elects not to perform the agreement, or
81. > > (b) as a result of this section, recovers money paid or other property transferred by him under the agreement,
82. > > he must repay any money and return any other property received by him under the agreement.
83. (8) If property transferred under the agreement has passed to a third party, a reference in section 26 or 27 or this section to that property is to be read as a reference to its value at the time of its transfer under the agreement.
84. (9) The commission of an authorisation offence does not make the agreement concerned illegal or invalid to any greater extent than is provided by section 26 or 27."
85. The activities specified for the purposes of section 22 of FSMA by the RAO include, in chapter XVC (which comprises articles 63J-63M), several related to sale and rent back agreements. Article 63J defines a "regulated sale and rent back agreement" in paragraph (3)(a) as:
87. "an arrangement comprised in one or more instruments or agreements, in relation to which the following conditions are met at the time it is entered into?
88. (i) the arrangement is one under which a person (the 'agreement provider') buys all or part of the qualifying interest in land (other than timeshare accommodation) in the United Kingdom from an individual or trustees (the 'agreement seller'); and
89. (ii) the agreement seller (if the agreement seller is an individual) or an individual who is the beneficiary of the trust (if the agreement seller is a trustee), or a related person, is entitled under the arrangement to occupy at least 40% of the land in question as or in connection with a dwelling, and intends to do so"
90. with the proviso that "such an arrangement is not a regulated sale and rent back agreement if it is a regulated home reversion plan". By article 63J(1), "[e]ntering into a regulated sale and rent back agreement as an agreement provider is a specified kind of activity" and, by article 63J(2), "[a]dministering a regulated sale and rent back agreement is also a specified kind of activity when the agreement was entered into on or after 1st July 2009". By article 63J(6), subject to an immaterial exception:
91. "references to entering into a regulated sale and rent back agreement as agreement provider include acquiring any obligations or rights of the agreement provider, including the agreement provider's interest in land or interests under one or more of the instruments or agreements referred to in paragraph (3)(a)".
92. Chapter XVC was inserted into the RAO by the Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) Order 2009. Many other activities are also, of course, specified for the purposes of section 22 of FSMA by the RAO. These include, for example, effecting and carrying out contracts of insurance (article 10), dealing in investments as principal (article 14), arranging deals in investments (article 25), managing investments (article 37) and entering into a regulated mortgage contract (article 61).
94. Section 382 of FSMA is also noteworthy. That empowers the Court, on the application of, among others, the Financial Conduct Authority ("the FCA"), to order someone who has contravened a relevant requirement, or been knowingly concerned in the contravention of such a requirement, and has made profits and/or caused loss or an adverse effect as a result of the contravention to pay to the FCA (or other applicant) "such sum as appears to the court to be just having regard ? to the profits appearing to have accrued" and "to the extent of the loss or other adverse effect". Any amount so paid is to be paid on to those to whom the profits are attributable or who have suffered loss or adverse effect.
96. FSMA replaced the Financial Services Act 1986 ("the 1986 Act"). That included in its chapter II of part I provisions comparable to those now found in part II of FSMA. In particular, section 3 of the 1986 Act prohibited anyone other than an "authorised person" or an "exempted person" from carrying on investment business and section 5 provided:
98. "(1) Subject to subsection (3) below, any agreement to which this subsection applies?
99. > > (a) which is entered into by a person in the course of carrying on investment business in contravention of section 3 above; or
100. > > (b) which is entered into?
101. > > (i) by a person who is an authorised person or an exempted person in respect of the investment business in the course of which he enters into the agreement ; but
102. > > (ii) in consequence of anything said or done by a person in the course of carrying on investment business in contravention of that section,
103. > > shall be unenforceable against the other party; and that party shall be entitled to recover any money or other property paid or transferred by him under the agreement, together with compensation for any loss sustained by him as a result of having parted with it.
104. (2) The compensation recoverable under subsection (1) above shall be such as the parties may agree or as the court may, on the application of either party, determine.
105. (3) A court may allow an agreement to which subsection (1) above applies to be enforced or money and property paid or transferred under it to be retained if it is satisfied?
106. > > (a) in a case within paragraph (a) of that subsection, that the person mentioned in that paragraph reasonably believed that his entering into the agreement did not constitute a contravention of section 3 above ;
107. > > (b) in a case within paragraph (b) of that subsection, that the person mentioned in sub-paragraph (i) of that paragraph did not know that the agreement was entered into as mentioned in sub-paragraph (ii) of that paragraph ; and
108. > > (c) in either case, that it is just and equitable for the agreement to be enforced or, as the case may be, for the money or property paid or transferred under it to be retained.
109. (4) Where a person elects not to perform an agreement which by virtue of this section is unenforceable against him or by virtue of this section recovers money paid or other property transferred by him under an agreement he shall repay any money and return any other property received by him under the agreement.
110. (5) Where any property transferred under an agreement to which this section applies has passed to a third party the references to that property in subsections (1), (3) and (4) above shall be construed as references to its value at the time of its transfer under the agreement.
111. (6) A contravention of section 3 above shall not make an agreement illegal or invalid to any greater extent than is provided in this section.
112. (7) Subsection (1) above applies to any agreement the making or performance of which by the person seeking to enforce it or from whom money or other property is recoverable under this section constitutes an activity which falls within any paragraph of Part II of Schedule 1 to this Act and is not excluded by Part III or IV of that Schedule."
113. David Richards J referred to the background to section 5 of the 1986 Act and sections 26 and 28 of FSMA in In re Whiteley Insurance Consultants [2008] EWHC 1782 (Ch), [2009] Bus LR 418. He explained:
115. "23 Before the Financial Services Act 1986, the issue of a policy by an unauthorised insurer was an illegal act and the policy was treated as illegal and hence unenforceable even by the innocent policyholder. It was considered that, in the absence of statutory provision to the contrary, the same would be true of unauthorised investment contracts. Following the recommendation of Professor L C B Gower in his report, Review of Investor Protection (1984) (Cmnd 9125), at para 10.32, the Financial Services Act 1986 provided in section 5 that an investment agreement made by an unauthorised person in the course of carrying on investment business was unenforceable against the investor. Section 5(6) provided that such an agreement was not illegal or invalid to any greater extent than was provided in section 5, so that the investor could enforce the agreement against the other party. Section 132 made similar provision for contracts of insurance.
116. 24 The effect of these provisions, that contracts made by unauthorised persons were enforceable against, but not by, such persons, was re-enacted as regards all agreements to which FSMA applies, including contracts of insurance, in sections 26(1) and 28(9) of FSMA."
117. The Judgment
118. In paragraph 94 of the Judgment, the Judge summarised the argument on which the Orchards succeeded before him in these terms:
120. "the agreements between the [Orchards] and R2BL were liable to be set aside or rescinded under section 26 of FSMA; ? the right of the [Orchards] constituted a mere equity; and ? it was binding on [Ms Dhillon] under the [Land Registration Act 2002] as an overriding interest protected by actual occupation of the property".
121. That argument not having been advanced before Judge Duddridge, the first question which the Judge addressed was whether he should allow the Orchards to advance it before him. He concluded that he should. In that connection, he explained that "the essential factual elements of the argument now being advanced were in issue on the pleadings" (paragraph 92 of the Judgment); that, while the way in which the matter had been presented at trial had "resulted in [Judge Duddridge] not considering that findings were needed on some further points", "the fact that a further hearing may be required to address some matters which [Judge Duddridge] did not cover in his judgment is not a determinative reason for preventing the defendants from running [the new point] on appeal" (paragraph 98); similarly, the fact that the Orchards had never joined or brought a claim against R2BL was "not a determinative issue" but one which should be remitted to Judge Duddridge for determination" if the appeal were allowed (paragraph 102); and, "[a]s to the potential for costs orders reflecting the manner in which the point has been run, there is sufficient equity in the Property to cover any such orders" (paragraph 101). The Judge said in paragraph 99:
123. "Overall I am satisfied that the argument advanced by the [Orchards] on this appeal would not have required further evidence on the matters now advanced or have led to the trial following a different course had counsel for the [Orchards] fully explained the [Orchards'] pleaded case to [Judge Duddridge]. The way the case was argued at the trial had the result that [Judge Duddridge], entirely understandably, did not make findings on some points raised by the pleadings. In my judgment the whole field of factual disputes relevant to ground 2 [i.e. the ground of appeal raising the new point] was raised by the pleadings, albeit if the appeal is allowed on this ground a further hearing will be required to determine the issues which [Judge Duddridge] considered he did not need to address (given the way the case was argued before him)."
124. Turning to the substance of the new point, the Judge considered that, "[r]ead together, sections 26 and 28 [of FSMA] render an offending contract voidable but not void" (paragraph 108 of the Judgment) and that "the proprietary entitlements of the innocent party are intended to be analogous to those of a party to a contract which is liable to be set aside for fraud, undue influence, or other grounds" so that, once exercised, the right to call for the return of the property by rescinding the transfer "has the effect of revesting the property in the original owner" while "[u]ntil then the title of the transferee is complete but is defeasible" (paragraph 109). The Judge explained in paragraph 114:
126. "I see no reason to conclude that the right of recovery given by section 26 should automatically be defeated by a transfer of that property by the offending party to a third party. It appears to me that sections 26 and 28 should be read against the background of general principles of law governing title to property (which includes the ability of a party under a contract to seek to set aside the contract and reclaim property passing under it). It appears to me that sections 26 and 28 fall to be read against the background of the law of rescission and they make greater sense (and promote legal coherence) if the right given by section 26(3) is capable of binding third parties (subject to defences of bona fide purchaser etc.). Indeed, that the power of the court under section 28 to determine that transfers of the property should be left undisturbed where this is just and equitable, can be seen to place the third party defence on a statutory footing."
127. The Judge saw the fact that "one of the key aims of FSMA is consumer protection" as supporting "the conclusion that the right to recover property under section 26 is capable in principle of binding third parties" (paragraph 115) and he did "not read [section 28(8)] as providing that the entitlement of B to recover his property is extinguished simply by reason of the transfer of the property to C" in circumstances where A had transferred on to C property which had been transferred to A by B (paragraph 118). In the Judge's view, "the rights of the innocent party will be governed by general principles of law governing the priority of interests in the relevant property where an agreement under which it initially passed falls to be set aside" (paragraph 119). If Brown v InnovatorOne plc [2012] EWHC 1321 (Comm) (" InnovatorOne ") decided otherwise, the Judge considered it to be wrong (paragraph 121).
128. Approaching matters on that basis, the Judge decided that the Orchards' right to have the transfer of the Property set aside under section 26 of FSMA "constitutes a mere equity for the purposes of the [Land Registration Act 2002]" (paragraph 122 of the Judgment) and, that being so, that the Orchards' rights "were protected as an overriding interest by their actual occupation of the Property" (paragraph 141). By section 29 of the Land Registration Act 2002 ("the LRA"), "[i]f a registrable disposition of a registered estate is made for valuable consideration, completion of the disposition by registration has the effect of postponing to the interest under the disposition any interest affecting the estate immediately before the disposition whose priority is not protected at the time of registration", but "the priority of an interest is protected ? if the interest ? falls within any of the paragraphs of Schedule 3". The interests listed in schedule 3 include, by paragraph 2:
130. "An interest belonging at the time of the disposition to a person in actual occupation, so far as relating to land of which he is in actual occupation, except for?
131. (a) an interest under a settlement under the Settled Land Act 1925 (c. 18);
132. (b) an interest of a person of whom inquiry was made before the disposition and who failed to disclose the right when he could reasonably have been expected to do so;
133. (c) an interest?
134. > > (i) which belongs to a person whose occupation would not have been obvious on a reasonably careful inspection of the land at the time of the disposition, and
135. > > (ii) of which the person to whom the disposition is made does not have actual knowledge at that time;
136. (d) a leasehold estate in land granted to take effect in possession after the end of the period of three months beginning with the date of the grant and which has not taken effect in possession at the time of the disposition."
137. The Judge concluded in paragraph 142 of the Judgment:
139. "For these reasons, I conclude that the [Orchards'] rights under section 26 of FSMA are binding on [Ms Dhillon] and that she did not take free of them when she became registered as the proprietor of the Property. Ground 2 of the appeal is therefore allowed. The consequences of this decision will need to be determined at a further hearing."
140. The appeal
141. By her appeal, Ms Dhillon challenges both the Judge's conclusion that the right of recovery for which section 26(2) of FSMA provides is capable of binding successors in title and his decision to allow the Orchards to advance the argument to that effect before him when they had not done so before Judge Duddridge. The submissions before us principally focused on the former issue and so I shall consider that first.
143. Is the right of recovery for which section 26(2) of FSMA provides capable of binding successors in title?
144. The earliest of the cases to which we were taken in relation to this issue was Securities and Investment Board v Pantell SA (No 2) [1993] Ch 256 (" Pantell "). That involved an unsuccessful application by defendants to proceedings brought by the Securities and Investment Board under section 6 of the 1986 Act (which was equivalent to what is now section 382 of FSMA) to have the claim struck out. At first instance, Sir Nicolas Browne-Wilkinson V-C said at 260:
146. "Pausing at this stage, the Act [i.e. the 1986 Act] therefore gives the individual investor a private right of action to recover money or property transferred under an investment agreement made in consequence of breaches of sections 3, 56 and 57 of the Act and a right of action to recover compensation for any loss suffered by the investor. But there are three points to be noted. First, and most important, the statutory rights of action of the individual investor lie only against the person who contravenes the statutory prohibition: the individual investor is given no cause of action against third parties, such as the solicitors, knowingly concerned in such contravention ?."
147. An appeal from Sir Nicolas Browne-Wilkinson V-C's decision was dismissed. In the course of his judgment, Scott LJ noted that section 5 of the 1986 Act combined a restitutionary remedy and a compensatory remedy and went on at 270-271:
149. "The restitutionary and compensatory provisions of section 5 do not in terms identify the person or persons against whom the remedies are available. But it is difficult to see how the section 5 restitutionary remedy could be available against anyone other than the other party to the transaction in question or the party to whom, under the transaction in question, the investor's money or property had been paid or transferred. Whether the compensatory remedy available 'together with' the restitutionary remedy, could be obtained against an accomplice who was neither a party to the transaction nor a person to whom money or property of the investor had been transferred is equally doubtful. These difficulties do not, however, have to be resolved on this appeal."
150. Scott LJ's comments were cited in InnovatorOne, a decision of Hamblen J, in support of the contention that section 26 of FSMA "founds a right of recovery not only against the counterparty to the agreement but also against third party recipients of any monies paid under the agreement": see paragraphs 1233 and 1234. Hamblen J did not accept the contention. He said:
152. "1235. The context of s.26(2) is an agreement made between a person in the course of carrying out a regulated activity and 'the other party' (s.26(1)). That agreement is rendered unenforceable against the 'other party'. It could only ever have been enforced by a party to the agreement and therefore must be referring to a contractual counterparty (and a contravening counterparty).
153. 1236. When s.26(2) then refers to the 'other party's right to recover money or property or compensation' it is naturally to be read as referring to a right to recover it from the counterparty to the agreement referred to in s26(1). This is reinforced by the reference to the right being to recover money paid 'under the agreement'. It is also reinforced by s.28(8) which provides that if property transferred under an agreement to which s.26 applies has passed to a third party, then references in that section and s. 28 to property are to be read as a reference to its value at the time of its transfer under the agreement: this suggests that third parties are outside the scope of s.26.
154. 1237. Further, under s.28(5) the right to relief from the compensatory or restitutionary remedy depends upon 'whether the person carrying on the regulated activity concerned reasonably believed that he was not contravening the general prohibition by making the agreement ' (emphasis added). This clearly shows that it is the person who made the agreement against whom the remedy may be obtained since he is the person (and the only person) who may seek relief against such a claim. If it were otherwise it would mean that relief could be obtained by the person who made the agreement and was contravening the general prohibition, but not by the third party recipient who made no such agreement and was not so in contravention. That would be an absurdity.
155. 1238. Yet further, the consequence of the Claimants' argument is remarkably far reaching. On the Claimants' case full recovery can be made against a non-counterparty such as CB who never held the monies beneficially and have long since parted with the monies in accordance with lawful instructions given. Recovery can also be made against a third party seller who acted in good faith and provided value for the monies received. The same would apply to a third party purchaser for value of property transferred who acted in good faith.
156. 1239. For all these reasons I reject the Claimants' case that the monetary claim under s.26 can be made against anyone other than the LLP [i.e. the contractual counterparty]."
157. InnovatorOne was followed by His Honour Judge Hodge KC, sitting as a Judge of the High Court, in Various Angelgate and Baltic House Claimants v Key Manchester Ltd [2020] EWHC 3643 (Ch), [2021] PNLR 15 (" Angelgate "), where the claimants were seeking relief under section 26 of FSMA. In paragraph 8, Judge Hodge said that, subject to an immaterial qualification, he was satisfied that he should follow Hamblen J's observations in InnovatorOne. He continued:
159. "Indeed, in his reply, [counsel for the claimants] made it clear that he accepted what Hamblen J had said at [1235] and [1236] of his judgment about the need for relief to be directed to the contractual counterparty. I accept the correctness of what is said at [1236] that, when s.26(2) is referring to the 'other party's right to recover money or property or compensation', it is naturally to be read as referring to a right to recover it from the counterparty to the agreement referred to in s.26(1). This is reinforced by the reference to the right being to recover money paid 'under the agreement'. It is also reinforced by s.28(8) which provides that if property transferred under an agreement to which s.26 applies has passed to a third party, then references in that section, and s.28, to property are to be read as a reference to its value at the time of its transfer under the agreement: this suggests that third parties are outside the scope of s.26. Further reasons for that construction, which seem to me to be convincing, were advanced at [1237] and following of Hamblen J's judgment."
160. As I have mentioned, the Judge differed from the views expressed by Hamblen J in InnovatorOne and subsequently endorsed by Judge Hodge KC. Supporting the Judge's decision, Mr Simon Howarth KC, who appeared for the Orchards with Mr Andrew Morrell, argued that InnovatorOne is distinguishable from the present case in that it was concerned with money and tax planning rather than a home; that Hamblen J appears to have misunderstood the statutory regime in certain respects; and that Angelgate takes matters no further, not least because it was not submitted to Judge Hodge that the views expressed in InnovatorOne were not correct. Mr Howarth also submitted that Pantell is more consistent with the Judge's analysis than Ms Dhillon's case since Scott LJ contemplated that the "section 5 restitutionary remedy" could be available against "the party to whom, under the transaction in question, the investor's money or property had been paid or transferred", not just "the other party to the transaction in question".
162. What is clear is that there is no authority binding on this Court as to whether the right to recover money or other property for which section 26(2) of FSMA provides is capable of being relied on against a successor in title of the original transferee. I must therefore return to the statutory provisions.
164. Section 26 begins by saying, in subsection (1), that an agreement made by a person in the course of carrying on a regulated activity in contravention of the general prohibition is unenforceable against the other party. It then states in subsection (2) that the "other party" is "entitled to recover (a) any money or other property paid or transferred by him under the agreement; and (b) compensation for any loss sustained by him as a result of having parted with it". Plainly, the intention is that the "other party" should be able to recover money or other property from the counterparty to the agreement rendered unenforceable by subsection (1), but section 26 does not specify that recovery is to be available against no one else. It simply provides in general terms for the "other party" to be "entitled to recover" money or other property paid or transferred under the agreement.
166. However, the only reference in sections 26-28 of FSMA to the possibility of the contractual counterparty having transferred property on to a third party is, on the face of it, inconsistent with the Orchards' case. Section 28(8) explains that, "[i]f property transferred under the agreement has passed to a third party, a reference in section 26 or 27 or this section to that property is to be read as a reference to its value at the time of its transfer under the agreement". On that basis, section 26(2) would provide for the "other party" to be "entitled to recover ? any money or [the value at the time of its transfer under the agreement of] other property paid or transferred by him under the agreement". Reading the provisions in that way, FSMA gives the "other party" a right to recover the value of property which has passed to a third party, not the property itself.
168. Mr Howarth submitted that section 28(8) of FSMA should be interpreted as referring only to a situation in which property has passed to a third party "absolutely". The opening words of section 28(8) should thus, he argued, be read as "If property transferred under the agreement has passed to a third party absolutely ". However, section 28(8) does not say that and I can see nothing in the context justifying such an implication.
170. The fact that sections 26-28 of FSMA are otherwise silent as to the position of successors in title seems to me to confirm that the rights of recovery for which sections 26(2)(a) and 27(2)(a) provide are not available against them. In the first place, as was pointed put by Mr Christopher Snell, who appeared for Ms Dhillon, section 28 directs the Court to have regard to "whether the person carrying on the regulated activity concerned reasonably believed that he was not contravening the general prohibition by making the agreement" (in a section 26 case) or "whether the provider knew that the third party was (in carrying on the regulated activity) contravening the general prohibition" (in a section 27 case) when deciding whether it is just and equitable to allow property to be retained under subsection (3): see subsections (4)-(6). Parliament might have been expected to comment on the extent to which a successor in title's knowledge or notice of the contravention should be a factor had it envisaged claims under section 26(2)(a) or section 27(2)(a) against successors in title, but nothing is said on the subject. It is true that, as Mr Howarth observed, subsections (4)-(6) do not limit the matters which the Court can take into account when determining whether property can be retained under subsection (3), but the omission of any reference to successors in title in this context is still significant.
172. Secondly, a similar point can be made in relation to section 28(7) of FSMA. That states that, if a person against whom an agreement is unenforceable recovers money paid or other property transferred by him under the agreement, "he must repay any money and return any other property received by him under the agreement". In circumstances where property was being recovered from a successor in title rather than the original contractual counterparty, it would make sense for the repayment/return for which section 28(7) provides to be to the successor in title, but section 28(7) does not say this. In fact, the references to "repay" and "return" would tend to suggest that the money/property should go back to the original counterparty. Since successors in title will not have paid or transferred the money/property in the first place, it would be somewhat inapt to speak of the money/property being "repaid" or "returned" to them.
174. A third point is that sections 26-28 of FSMA do not attempt to spell out when a successor in title is to be vulnerable to a claim to recover money or property under section 26(2) or section 27(2). The present case concerns registered land and so, on the Judge's analysis, the LRA determines when a successor in title will take free of any right of recovery. However, sections 26 and 27 can apply to a range of other assets. They expressly refer to money, yet FSMA offers no guidance as to the scope, if any, for tracing. Suppose, say, that A buys property from B, a person carrying on a regulated activity in contravention of the general prohibition, and B then uses the proceeds to purchase shares from C, who in turn pays mortgage interest and goes on a holiday. FSMA does not deal with the susceptibility of C to a claim: is there, for instance, scope for C to escape any claim on the basis of bona fide purchase for value without notice? Nor is it apparent from the statute whether A could assert claims against the recipients of the mortgage interest and the money expended on the holiday. Or suppose that A sells shares to B and they are sold on successively to C and D. On the Judge's approach, it would seem that the defence of bona fide purchase for value should be available to C and D, but FSMA does not say so. Further, the justice of exposing D to a claim to disgorge the shares would be the more open to debate if they had risen substantially in value and so D had paid much more for them than they had been worth when originally sold to B. Again, the original transaction rendered unenforceable by section 26 or section 27 might have involved a mortgage rather than a sale. If A charged property in favour of B and it were then sold to C pursuant to the power of sale, would C be susceptible to a claim for recovery of the property? Mr Howarth suggested that that would be the case. What matters for present purposes is that FSMA does not attempt to give an answer. If Parliament had intended it to be possible to rely on section 26(2) or section 27(2) against successors in title, it could be expected to have grappled with such issues.
176. A fourth point relates to sections 26(2)(b) and 27(2)(b) of FSMA. If sections 26(2)(a) and 27(2)(a) extend to successors in title, there would seem to be no reason why the rights to compensation for which sections 26(2)(b) and 27(2)(b) provide should not also be capable of being asserted against successors in title. Yet FSMA does not explain when successors in title are to be vulnerable to such claims or on what basis compensation is to be calculated. Take once more a purchase of shares from A by B and on-sales to C and then D. Might A be able to seek compensation from C if the shares declined in value during his ownership or something has happened making it impossible to recover the shares from D? The answer is not readily ascertainable from the legislation.
178. However, Mr Howarth argued that, were it impossible to obtain relief under section 26(2)(a) against successors in title, there would be no satisfactory solution if, say, A entered into a sale and rent back agreement with B, a special purpose vehicle with no significant assets carrying on business in contravention of the general prohibition, and the property were sold on collusively to C, a company with the same directing mind, a few days later. Parliament would not have wished A to be left with nothing but a worthless money claim against B, Mr Howarth submitted.
180. However:
182. i) By virtue of sections 26(2)(a) and 28(8) of FSMA, A would have a right to recover from B the value of the property at the time of its transfer to B. A could also, potentially, claim compensation from B under section 26(2)(b). Further, the FCA could seek redress under against C under section 382 on the basis that it had been knowingly concerned in a contravention, albeit that, as Mr Howarth pointed out, the FCA does not normally bring proceedings unless there has been large-scale contravention of FSMA;
183. ii) On the basis that the sale to C was collusive, it is unlikely to have paid full value for the property. Were it to have done so, however, B's assets would have been augmented to that extent, making a claim against B more plausible; and
184. iii) Should the sale to C have been at an undervalue, there would be insolvency/company law remedies open to A. A might, for example, be able to invoke section 423 of the Insolvency Act 1986. If needs be, A could obtain a winding-up order against B in the expectation that the liquidator would challenge the sale to C as a transaction at an undervalue and/or allege breach of fiduciary duty by its director(s).
185. Mr Howarth also submitted that the fact that a sale and rent back agreement generally relates to a person's home indicates that it should be possible to obtain recovery from successors in title. However, sections 26(2) and 27(2) do not apply only in relation to homes or, indeed, land. In fact, sale and rent back agreements were added to the RAO only some years after FSMA had been enacted and the RAO had been promulgated in its original form.
187. In all the circumstances, it seems to me that the rights to recover money and property for which sections 26(2)(a) and 27(2)(a) of FSMA provide do not extend to successors in title. I thus respectfully consider that the conclusions of Hamblen J in InnovatorOne and Judge Hodge KC in Angelgate are to be preferred to the Judge's analysis. It follows that the appeal should, in my view, be allowed.
189. Should the Orchards have been allowed to advance the new argument?
190. On the basis of what I have said above, the question whether the Judge was right to allow the Orchards to advance the new argument before him does not matter. I shall nevertheless address it briefly.
192. The principles governing whether a party should be permitted to take a new point on appeal have been considered recently in Singh v Dass [2019] EWCA Civ 360 and Notting Hill Finance Ltd v Sheikh [2019] EWCA Civ 1337, [2019] 4 WLR 146 (" Notting Hill "). In the former case, Haddon-Cave LJ said:
194. "15. The following legal principles apply where a party seeks to raise a new point on appeal which was not raised below.
195. 16. First, an appellate court will be cautious about allowing a new point to be raised on appeal that was not raised before the first instance court.
196. 17. Second, an appellate court will not, generally, permit a new point to be raised on appeal if that point is such that either (a) it would necessitate new evidence or (b), had it been run below, it would have resulted in the trial being conducted differently with regards to the evidence at the trial (Mullarkey v Broad [2009] EWCA Civ 2 at [30] and [49]).
197. 18. Third, even where the point might be considered a 'pure point of law', the appellate court will only allow it to be raised if three criteria are satisfied: (a) the other party has had adequate time to deal with the point; (b) the other party has not acted to his detriment on the faith of the earlier omission to raise it; and (c) the other party can be adequately protected in costs. (R (on the application of Humphreys) v Parking and Traffic Appeals Service [2017] EWCA Civ 24; [2017] RTR 22 at [29])."
198. In Notting Hill, Snowden J said after referring to Singh v Dass and other cases:
199. "26 These authorities show that there is no general rule that a case needs to be 'exceptional' before a new point will be allowed to be taken on appeal. Whilst an appellate court will always be cautious before allowing a new point to be taken, the decision whether it is just to permit the new point will depend upon an analysis of all the relevant factors. These will include, in particular, the nature of the proceedings which have taken place in the lower court, the nature of the new point, and any prejudice that would be caused to the opposing party if the new point is allowed to be taken.
200. 27 At one end of the spectrum are cases such as [Jones v MBNA International Bank Ltd [2000] EWCA Civ 514 ] in which there has been a full trial involving live evidence and cross-examination in the lower court, and there is an attempt to raise a new point on appeal which, had it been taken at the trial, might have changed the course of the evidence given at trial, and/or which would require further factual inquiry. In such a case, the potential prejudice to the opposing party is likely to be significant, and the policy arguments in favour of finality in litigation carry great weight. As Peter Gibson LJ said in the Jones case (at para 38), it is hard to see how it could be just to permit the new point to be taken on appeal in such circumstances; but as May LJ also observed (at para 52), there might none the less be exceptional cases in which the appeal court could properly exercise its discretion to do so.
201. 28 At the other end of the spectrum are cases where the point sought to be taken on appeal is a pure point of law which can be run on the basis of the facts as found by the judge in the lower court: see eg Preedy v Dunne [2016] EWCA Civ 805 at [43]?[46]. In such a case, it is far more likely that the appeal court will permit the point to be taken, provided that the other party has time to meet the new argument and has not suffered any irremediable prejudice in the meantime."
202. When deciding whether to permit a new point to be raised, an appellate Court must, therefore, consider potential prejudice to the other party and, in particular, whether the other party can be adequately protected as to costs. In the present case, the Judge said that there was "sufficient equity in the Property" to cover any costs orders. However, Mr Snell argued that the Judge's approach was unsustainable.
204. The Judge evidently assumed that "equity in the Property" would be available to the Orchards to satisfy any order as to costs. The assumption was not warranted, however. Even on the basis of the Judge's analysis of FSMA, it was by no means a foregone conclusion that the Orchards would recover the Property and, if they did not, they could not be entitled to any equity in it. The Judge himself gave directions for a number of issues to be determined at a further hearing (see paragraph 14 above) and their resolution could have precluded the return of the Property to the Orchards.
206. What the Judge needed to consider was whether the Orchards would be able to meet an adverse costs order (including, potentially, in respect of costs incurred in relation to the further hearing for which the Judge provided) in circumstances where they had not recovered the Property. There was no reason to believe that they could. In the course of the hearing before us, Mr Howarth accepted that a costs order might be of little practical benefit to Ms Dhillon if the Orchards were unsuccessful at the further hearing.
208. As Mr Howarth pointed out, the circumstances in which this Court will interfere with a decision to allow a new point to be run are limited (compare e.g. Re Sprintroom [2019] EWCA Civ 932, [2019] 2 BCLC 617, at paragraph 76). However, it seems to me that this is a case in which there is an "identifiable flaw in the judge's treatment of the question to be decided" (to use the words of McCombe, Leggatt and Rose LJJ in Re Sprintroom) and that the Judge was, with respect, wrong to entertain the new argument.
210. Conclusion
211. I would allow the appeal.
213. Lady Justice Asplin:
214. I agree.
216. Lord Justice Snowden:
217. I also agree.

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